Legislature(2009 - 2010)BELTZ 211
04/16/2009 03:45 PM Senate LABOR & COMMERCE
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* first hearing in first committee of referral
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CSHB 177(L&C)-MARINE & MOTORIZED RECREATIONAL PRODUCTS 4:47:16 PM CHAIR PASKVAN announced CSHB 177(L&C) to be up for consideration. SENATOR THOMAS moved to adopt SCS CSHB 177, labeled 26-LS0477\M, for purposes of discussion. There were no objections and it was so ordered. RENNIEVA MOSS, staff to Representative Coghill, sponsor of HB 177, said this is a consumer protection bill. The adopted CS added language that was suggested by Attorney General Ed Sniffen that mirrored motor vehicle lemon laws by adding venue and jurisdiction language to the statutes. 4:49:33 PM MS. MOSS said she wanted to review the bill for them and that she had a couple of amendments for their consideration. The first section clarifies in the motor vehicle section that recreation vehicles, ATVs, and snow machines will be dealt with in a new chapter, which is AS 45.27, known as the Marine Products and Motorized Recreational Vehicle Recreational Products. First it says that a manufacturer can't unreasonably withhold consent of sale or transfer if the transferee meets the criteria and agrees to be bound by all the agreements in the dealership agreement. It also says that a manufacturer cannot cancel or fail to renew an agreement unless they have shown good cause and satisfy notice requirements. It then goes on to say that notice requirements would be 60 days for material provisions of an agreement, but in cases of fraud or insolvency, that would result in cancelation of the contract with only to be a 15-day notice. It also says that a manufacturer cannot decline to renew a dealership because of the death or incapacity of an owner, specifically if the dealership was not granted solely on the qualification of the owner. It defines "good cause" and repeats in more specifics how the manufacturer would have to furnish notification of cancelation or non-renewal. The notice has to be in writing by certified mail. New provisions say that a manufacturer cannot coerce or attempt to coerce a dealer into dealership agreements to perform unfair acts - one would be requiring a dealer to overstock. It defines a manufacturer's representative as an employee or an agent of the manufacturer and goes into cancelation and repurchasing by saying if a manufacturer cancels or fails to renew a dealer agreement without good cause, that dealer would be obligated to purchase back the new product that is the current model year and the previous year and that includes product parts that have been listed in the manufacturer's parts book for two years. The exceptions are if the parts or products have been substantially damaged or altered and the repurchase price would be based on the dealers landed costs. The product warrantee section is where the manufacturer promises to provide parts in a reasonable timeframe for warrantee work, makes an obligation to pay the authorized dealer specific rates for warrantee work, and then it makes some requirements on the dealer not to misrepresent the warrantee and to agree to do the warrantee work for the manufacturer. Language on page 6, line 21, sets out the basis for reimbursement and three ways for it to occur. 4:54:01 PM Line 24 is where she wanted the committee to consider an amendment that sets out that the manufacturers shall pay the highest rate of either what the dealer would customarily charge in a non-warranty service or the manufacturer's printed flat rate or in the future a flat-rate manual that has been produced for the industry. She asked them to consider that this would be the case if the authorized dealer has certified technicians performing the warranty work. This is already common practice. Another area for them to consider is whether language on page 7, lines 2-7, is the proper wording. If subsection 2 is already considered warrantee work, do they have to be specific in listing those services and reimbursement for doing paperwork for warrantee work? Now it has a minimum of one hour for the authorized dealer shop standard labor rate, which is the mechanics rate, not necessarily the rate of someone doing paperwork. Next, she said, timelines were set out for how claims should be submitted and how manufacturers could address them. The manufacturer would have 30 days to deny the claim and give written notice as to why they have denied the claim or to pay it. If neither happens it is assumed the claim has been accepted and they will be charged interest until it is paid. 4:55:59 PM MS. MOSS said language at the bottom of page 7 starts the "lemon law." If the dealer and the manufacturer have made reasonable attempts to correct non-conformity of a product unsuccessfully, then the purchaser of that product would submit in writing what the non-conformity is and then request that it be repurchased or replaced. The manufacturer on a repurchase would refund a reasonable amount of money with considerations for deductions for straight line depreciation and damages to the product that would reduce the value of the product. It also says if there is a lien holder, then he would also be taken care of in the repurchase. 4:56:59 PM MS. MOSS said the exceptions to a repurchase are fairly obvious. If the manufacturer or dealer can prove that it's not a nonconformity, that it's something that the purchaser did to the vehicle themselves, for instance, by letting it run out of oil or if they let someone do something to the product that caused the non-conformity. The lemon law states specifically that if there is a non- conformity to that product and the dealer has attempted to repair it three or more times or if the product is out of service for repair for a total of 30 or more days, then the purchaser of the product can request that it be refunded or replaced. Article 3 is the consumer protection section. It requires certain posting of labor rates including for non-warrantee work and certification of technicians. It also requires a shop to notice whether employees are paid on commission and when a person brings a vehicle or product in for repair to furnish him a written estimate of costs of repair including parts and labor. For additional work, they have to contact the customer for permission. Content of factory recalls is a notice to the dealer and the consumer letting them know that there is a recall on a certain part and when they can expect that part to be supplied to the dealer for repairs. It goes into not allowing a manufacturer to resale a product that they have repurchased because of a non- conformity unless they provide full disclosure of it to the new purchaser. 4:59:44 PM Miscellaneous provisions say that other laws and other civil procedures on the books still apply; it's applicable to a dealer and a manufacturer in an agreement. The jurisdiction is the State of Alaska. The venue is the judicial district closest to the dealer that sold the product. HB 108 doesn't allow a manufacturer to use an affiliate partnership or subsidiary corporation to avoid this law. It says that any part of a dealer agreement that violates these sections of law would not apply. 5:00:27 PM SENATOR BUNDE asked if a provision in the dealership agreement section on page 11, line 30, violates this chapter because it is a way to get out of the consumer protection. MS. MOSS answered with an example - if somebody doesn't read a lengthy contract, a provision says a company has the absolute right and its sole discretion to terminate the agreement on 10- days written notice. That provision won't apply here, but violation of this statute says 15 days notice can be given with cause and 60 days without cause. MS. MOSS said on page 12, line 25, the definition of "marine product" is changed in the CS to include gasoline motors designed for recreation or commercial use on water. Some members raised concerns that they were interfering in commercial contracts between fishermen and manufacturers. Diesel engines for fishermen are bought directly from manufacturers and have a separate warrantee provision. Fishermen and dealers have told her that adding gasoline motors would cover about 99.3 percent of who they are trying to cover under this statute. 5:02:28 PM An applicability section on page 15 says this new statute applies to dealership agreements that are signed after this bill is enacted, and it has an immediate effective date. CHAIR PASKVAN asked if it applies to renewals of dealership agreements. MS. MOSS replied yes - cancellation as well as renewal. CHAIR PASKVAN asked the industry standard for term of renewal for any of the typical dealers in Alaska. MS. MOSS said she didn't know, but some dealers would. 5:03:24 PM KATHY VAN KLEEK, Specialty Vehicle Institute of America, opposed HB 177. She said it would raise the cost of doing business and ultimately increase the cost of recreational products to Alaskans. They don't oppose reasonable franchise legislation and don't oppose many of the bill's provisions. However, there are a few very problematic provisions. One is the requirement that the manufacturer reimburse the dealer for warranty service at the dealer's retail rate. Some manufacturers do have cured reimbursement systems depending on levels of factory training that a technician has completed. This encourages dealers to employ the most highly qualified technicians, which significantly benefits consumers. Requiring the same reimbursement for all only punishes those dealers who spend considerable time and money to have and retain the most qualified technicians. She said they would support an amendment requiring an additional hour's reimbursement for administration. Another problematic provision is the lemon law requirement; the language lacks in specificity and off road vehicles and ATVs should not be included. Lemon laws were written to address concerns with the automobile industry, and almost exclusively every state law applies only to motor laws operated on highways. The ATV has a number of unique factors and inherent differences from cars that don't make sense with lemon laws. Off highway vehicles are not included in the National Conference of State Legislature's Model Lemon Law either. Use patterns are very different from those of cars. MS. VAN KLEEK explained that ATVs are used for recreational and utilitarian purposes, and are many times subject to modification and extreme use and abuse. Many are used for competition purposes, and it's seems no more appropriate to cover these products under a lemon law designed for cars than it does to cover other products such as household appliances, all of which are covered under the Uniform Commercial Code that offers protection to buyers of defective products. ATV manufacturers view warrantee repair policies as investment in good consumer relations and future repeat sales. If customers are dissatisfied, they simply won't buy another ATV of that make. If this provision were enacted, good will repairs, which are not uncommon for manufacturers to authorize, would end since they would be included in the number of repairs allowed before the lemon law provisions would kick in. Also ATV use is seasonal and customers may leave their ATVs for service at dealerships for extended periods of time. 5:08:10 PM But if the law requires replacement or refund if the ATV has been out of service for 30 days, that practice would end, as well. This is more of a customer convenience, but the manufacturer's exposure would overshadow the owner's convenience and the dealer's efficiency. They don't believe that the small incidence of problems in this area and the fact that ATV manufacturers are currently acting in a responsible manner to achieve customer satisfaction justify the downsides that would be brought about with the passage of a lemon law. 5:08:28 PM Finally, Ms. Van Fleek said, some terminology in HB 177 would lead to confusion and conflict. The bill includes ATVs in the definition of "recreational vehicles," but recreational vehicle is defined elsewhere in Alaska statute to mean motor home type vehicles and they are subject to numerous other types of laws. So, she suggested removing that language. She urged that the bill be amended to reflect these needed changes and to give it a more thoughtful review. 5:09:29 PM DAVID DICKERSON, National Marine Manufacturers, said they represent the recreational boat and engine manufacturers. He said he needs more time to review the significant changes in HB 177 even though they seem to be good. He cautioned that the bill seems to be based on the assumption that dealers are powerless against boat engine manufacturers. That's not true in Alaska where there are few marine dealers. A cancelation by a dealer can push a boat brand completely out of a market here, because he doesn't have anywhere else to go unlike in a lot of places with competition. The premise that dealers need the protection from cancelation is turned on its head in a state like Alaska. Secondly, the lemon law doesn't differentiate very well for boats that are an assembly of components with different warrantees quite unlike other products under consideration. The definition of "part" is also an "accessory" and makes it difficult to determine who should provide those parts if one should fail. As far as the repurchase of a vessel, should there be a cancelation or non-renewal, it doesn't discuss at all that the boat should have no changes to it, no additional equipment or other accessories that may make it substantially different than the boat that was shipped up to the dealer. In addition to some of these things, the idea of the parts needed for warrantee repair is somewhat unclear. It says that the dealer should be reimbursed at full retail for parts used in warrantee repair, but if that part is being sent to the dealer for a specific repair on a specific unit, why should that dealer be reimbursed at full retain rate for a product that is dropped at his door? It's hard to figure out the benefit in having these types of mandates on private business. He understands that not every unit coming off of every assembly line is absolutely perfect and that's why warrantees exist; that is why manufacturers try hard to see that those working on them have the proper level of training. 5:14:27 PM MR. DICKERSON said the marine industry uses training as a way to attain 110 percent of the retail rate as an incentive to have that proper training. Mandating that they cannot use that as incentive puts dealers into a double bind. On one hand they have to be sure that repairs are done right and don't exceed three times of effort on the same problem, but on the other hand, they are not put in the position of being able to require that those techs, whether they are certified or not, have a continuing level of education. It will require them to rethink how techs are certified or how an authorized repair facility designation is provided to a dealership. No longer will that be an incentive to have the type of training that consumers and manufacturers expect. MR. DICKERSON echoed the concern regarding the additional hour of payment for each warrantee repair claim. Since much of the work is done by a lesser paid individual at most dealerships, the idea of $110 for each warrantee claim for administrative expenses seems excessive. He reiterated the request that they delay action to give involved parties the opportunity to work on the issue. SENATOR THOMAS asked when he first became aware of this bill. MR. DICKERSON replied he became aware of HB 303 in January 2008. The bills have significant differences. SENATOR BUNDE said one-hour of mechanic's time is too much. MS. MOSS said she was hoping to get feedback from the dealers on a reasonable amendment. 5:18:20 PM KEVIN HITE, President, Alaska State Snowmobile Association, supported HB 177. He stated that several levels of consumer protection are in place for vehicles in Alaska that are currently titled under DMV regulations, and HB 177 would provide some of the non-road titled vehicles a good measure of the same protections. Automotive dealers do such a good job of repairing vehicles because their consumer protection level for them insure that they get reimbursed at a rate equal or greater than repair work. Automotive dealers are not losing money on repair work regardless of where the original sale of the truck was. He said that snow machines, primarily, don't enjoy the same level of support in the warranty arena from the OEM dealer system. Losing money on a current customer is one thing; losing money on someone else's customer is not incentive for either one. If a customer is outside the road system, that could mean an expensive shipping bill to return the machine to the original dealer. He explained that there have been issues with models still used in Alaska that the OEMs have not fixed and this has been ignored in large part due to the fact that the market here is small. The fact that snow mobiles are the main mode of transportation for much of Alaska makes those same issues huge in the overall picture. Dealers here are aware of manufacturing problems and many times don't have a whole lot of support from the OEMs who focus more on models that sell a whole lot more in the Lower 48. Holding OEMs responsible for liability on vehicles that are critical to our way of life regardless of geographic location will result in a lot better operating and designed vehicles for Alaska. This legislation will provide protections for consumers and local businesses as well. SENATOR BUNDE said the one-hour reimbursement of a mechanic's time for paperwork seems excessive. Would he have a suggestion? MR. HITE answered that those decisions are primarily driven by the work load that comes in. Some warranty work is extremely simple; some will be quite involved. The administrative effort to get the warranty work correct may dictate different levels of that. He would rely on the dealers for the information to verify what actually went in to some warranty work. He couldn't make a different recommendation. 5:23:35 PM DUDLEY BENESCH, Alaska Mining and Diving, Alaska Marine Dealers Association, supported HB 177. He said their association is comprised of 28 member businesses and dealers throughout Alaska, and have been working hard on the issues addressed in this bill for a lot of years. They researched a study of what other states had done and HB 177 has been crafted to address many of special needs of the Alaskan consumers and the market up here; it has very broad support. Elsewhere a snow machine might be a toy, but in Alaska these products are the primary mode of transportation or the means to earn a living, especially in the rural areas. Safety and dependability are key issues for their customers. In 2008 as a dealer, Mr. Benesch said, he invested over $37,000 in sending technicians to specialized schools to keep them certified and current on the changing technology and sending his management folks to mandatory dealer meetings in the Lower 48. In addition, his dealership spends many thousands of dollars each year purchasing new software, hardware and special tools needs to fix everything they sell and to do a good job at repairs. These are significant investments that they do willingly to insure that customers get good help. What has become more difficult is that more and more products have warranty and significant defects and those costs are being shifted on to the dealerships. The products seem to not be tested properly and are maybe rushed to market to try and get the edge on the competition. In essence HB 177(SB 173) will hold those who create a problem more accountable for the real costs to fix the problem. MR. BENESCH said that his dealership has one full-time employee whose whole job is just to handle the paperwork and details that are required for a warranty claim to get paid to a dealership. Warranty administration has become very complex. 5:28:54 PM CHAIR PASKVAN asked if one hour is reasonable for administrative costs. MR. BENESCH answered the problem is that some jobs are more complex than others. So they looked at a sampling and tried to come up with an average. Without any doubt whatsoever, one hour is realistic for administrative costs. SENATOR BUNDE asked how much one hour would cost. MR. BENESCH replied $110. Others charge from $80-$120. 5:31:13 PM DAVE MCCORMICK, owner, Back Creek Marine, said that people in Bethel depend on these recreation vehicles and supported HB 177. They are used for rescue, getting wood, catching food and are the main means of transportation. People spend the better part of a year's family's income to buy one vehicle. Kuskokwim/Yukon Delta consumers rely on his shop to repair their defects and keep them going after they are off warranty. Normally they can't afford to fix them after the warranties are over. However, he is losing so much money and may be going bankrupt because he is covering expenses that the manufacturers should be covering for warranty work that he does. It's vital to pass this bill for his people's sake. 5:36:26 PM CRAIG COMPEAU, Compeau's Inc., supported HB 177. He said that he feels one hour reimbursement is conservative for administrative costs in a real world basis. It is for things like greeting the customer, writing up the service order, transporting the vehicles in and out of the shop, ordering parts, filing the claim, contacting customer service, returning parts, tracking the parts and tracking the reimbursement. He figures it is actually closer to 1.3 hours. People don't realize that retail service work gets bumped when they are having to work on factory defects at a subsidized rate. "It's not fair." 5:38:31 PM CHAIR PASKVAN closed public testimony. SENATOR BUNDE moved to adopt Amendment 1 labeled 26-LS0477\M.2. 26-LS0477\M.2 Bannister AMENDMENT 1 OFFERED IN THE SENATE TO: SCS CSHB 177( ), Draft Version "M" Page 6, line 24: Delete "A" Insert "If the technician performing the warranty service work meets the certification standards in the dealership agreement, a" SENATOR MEYER objected for discussion purposes. MS. MOSS explained that it addresses one of the manufacturer's concerns on page 6, line 24, that if they're going pay full retail non-warranty rates for warranty work, that the work is done by certified technicians. This inserts "if the technician performing the warrantee service work meets the certification standards in the dealership agreement, a manufacturer shall pay" and then goes to the pay scale. SENATOR MEYER removed his objection and Amendment 1 was adopted. 5:40:18 PM SENATOR BUNDE moved to adopt Amendment 2, 26-LS0477\M.3. 26-LS0477\M.3 Bannister AMENDMENT 2 OFFERED IN THE SENATE TO: SCS CSHB 177( ), Draft Version "M" Page 7, line 8, following "parts": Insert "in the authorized dealer's inventory" Page 7, lines 9 - 10: Delete "and shall ship each part to the authorized dealer without cost for freight or handling" SENATOR MEYER objected for an explanation. MS. MOSS explained that this amendment is on page 7, line 8, and clarifies something Mr. Dickerson addressed. It clarifies that when a manufacturer pays a dealer retail for a part, it is for a part that the dealer has on his shelf in his inventory. The second part deletes lines 9-10 because it's a duplication in wording that is already discussed on page 5. 5:41:49 PM SENATOR MEYER removed his objection and Amendment 2 was adopted. 5:42:01 PM MS. MOSS said the purpose of language on page 1 is to distinguish between a recreational vehicle that could be a motor home, an all-terrain vehicle, or a snow machine, and these would be regulated under the new Chapter 27. She stated that these vehicles are often the only means of transportation for many Alaskans and should be covered by a lemon law. SENATOR BUNDE asked on page 3, lines 15-16, about allowing immediate cancelation upon bankruptcy or felony conviction. MS. MOSS answered that her only concern is that bankruptcy requires court proceedings, and she wasn't sure what effect that would have. She didn't think the sponsor would have a problem with reducing that notification period. CHAIR PASKVAN commented that 15 days is a relatively short time in the scheme of things. SENATOR BUNDE said he was wondering about "things wandering out the back door." 5:45:10 PM SENATOR THOMAS moved to report SCS CSHB 177(L&C), version M as amended, from committee with individual recommendations and attached fiscal note(s). SENATOR BUNDE commented that he was concerned that adopting this bill might discourage manufacturers from selling ATVs up here because Alaska is a relatively small market. Testimony has indicated that they are designed for occasional use about three months a year and Alaskans use them every day for six months a year. SENATOR MEYER objected for discussion. SENATOR THOMAS noted a zero fiscal note. SENATOR MEYER removed his objection and SCS CSHB 177(L&C) moved from committee.